WEAKNESSES

Risk assessment

Major investment projects drive growth

After two years of strong expansion as the economy experienced a catch-up phase following a challenging 2015, notably due to the Ebola outbreak, growth slowed significantly in 2018. Nevertheless, it will remain vigorous in 2019and is expected to be driven by investment, both public and private, and mining production (bauxite). The National Economic and Social Development Plan (PNDES) – whose financing, negotiated at the end of 2017, includes numerous PPPs – aims to fix the country's infrastructure deficit and will extend until 2020. One of the sectors targeted is energy, with the goal of increasing access to electricity to 35% by 2020 and 100% by 2030 (compared with 29% in 2015), through a national programme. Four dam projects are planned, the largest of which, Souapiti, is expected to generate more than 500 megawatts, as compared with 773.97 MW for the country as a whole today. With more than a billion dollars in Chinese financing and built by China International Water and Electric Corporation, the new dam should be completed by early 2020.

Energy is a strategic sector for the country. It is needed to operate the mines, which in 2018 caused load shedding in some Guinean cities, particularly Siguiri. It is also key to the government's project to transform bauxite into alumina, whose export price is about 12 times higher. Nine projects to transform bauxite into alumina and one to turn alumina into aluminium are under review. Bauxite production is expected to increase further in 2019, when the Bel Air mine operated by Alufer moves to full production mode, making the country the world's third-largest exporter. More generally, mining production, which is highly diversified (gold, diamond, iron), should support growth. Job creation in this sector, including about 10,000 jobs for a single alumina refinery and railway project in Dapilon in the Kobe region, along with higher yields and increased agricultural processing should support economic growth through private consumption. However, consumption continues to be affected by high inflation, particularly due to the rise in food prices.

The many projects are a drag on the current account

The budget balance is expected to remain in the red in 2019. The level of grants – slightly above 1% of GDP – will help to lower the deficit. The government, which relies heavily on the private sector to fund infrastructure investment, will still have to contribute to the financing by raising the level of investment spending (to about 7.5% of GDP). Less affected by security needs than some of its neighbours, Guinea is expected to see its current expenditure decline slightly to remain at 11% of GDP.

The current account deficit should narrow in 2019, while still being significant. The forecast reduction in the trade deficit by more than 6% of GDP will be driven by mining exports, which account for more than 90% of exports. Meanwhile, the continuation of relatively high oil prices should be offset by lower imports of capital goods, as the supply of construction material for the Souapiti dam was completed in 2018. The balance of services will also improve for the same reason. Conversely, increased output from mines operated by foreign companies will worsen the income balance, but its GDP share (around 7%) is too small to stop the current account from improving. The current account deficit will continue to be financed by public project loans and private investments, mainly FDI, but funding is expected to be considerably reduced compared with 2018, which was a very busy year for projects. The upward trend in foreign exchange reserves, which stand at just over 3.5 months of imports, is expected to continue in 2019. Pressure on the exchange rate could therefore ease, allowing the value of the Guinean franc to stabilise.

60 years after independence, the journey towards a peaceful democracy continues

The first African country to gain its independence from France, Guinea celebrated 60 years of independence at the end of 2018. Ceremonies were held at the Stade du 28 Septembre, the capital stadium where, on the same day in 2009, the military junta killed 150 people at an opposition meeting, in a symbol of the still fragile political situation. Alpha Condé became the country's first democratically elected president in 2010.

Economic and social reforms undertaken since then have led to a significant improvement in the business climate, which ranked 152nd in the Doing Business 2019 ranking, up eleven places compared with 2017. However, the lack of energy infrastructure and repeated load shedding caused unrest in some cities in 2018, which could resurface if these problems recur. Social discontent is increasingly visible, and Mr Condé's vague statements about potentially standing for a third term in 2020, which would be unconstitutional, could worsen the situation.